MIT CISR Research on IT Portfolios, IT Savvy and Firm Performance

While waiting for my next flight to Houston at Atlanta airport, I read the Research Briefings published by MIT CISR on their research on IT portfolios, IT Savvy and Firm Performance. The points that I found useful for my work, are noted below.

The investment in IT by firms can be viewed using the portfolio concept. MIT CISR has identified four asset classes in which firms make their IT investments. Based on their research, they have also given the breakup of IT investment across these asset classes for an average firm as per data collected in year 2005. The first asset class is Infrastructure, which typically accounts for 46% of total IT investment. Infrastructure systems provide IT capability to support the applications. The second asset class is Transactional, which accounts for 26% of average IT investment. Transactional systems utilize the infrastructure and are used to cut cost or increase throughput for the same cost. The third asset class, Informational accounts for 17% of average IT investment. The Informational systems typically summarizes the transactional systems and provide information for any purpose including to account, control, report, communicate, collaborate or analyze. They make use of both infrastructure and transactional systems. The final asset class, Strategic, accounts for 11% of average IT investment. Like Informational systems, Strategic systems use both infrastructural and transactional systems and are used for gaining competitive advantage or position in market place.

Beyond providing overall average figures, the research briefing also provides the average figures for industries. So if we know these figures for a particular firm, we can compare them with the industry average to gain some useful insights. The research briefing also provides average figures for firms having different business strategies such as cost focused, agility focused and balancing cost and agility.

Another interesting finding from MIT CISR research is that firms with more firm-wide IT savvy have better pay-off associated with all their IT investments. The IT savvy is defined as a set of practices and competencies that add value to each IT dollar invested. The researchers have identified five characteristics of such firms. The first three characteristics are practices related to IT use while the last two are the competencies needed for high IT savvy.

1. More IT use for internal and external communication and work practices.
2. More business transactions digitized.
   
3. More use of Internet and open standards.
   
4. Higher IT skills of both business and IT employees.
5. More senior management and business unit involvement in IT decisions.
   

The research briefing provides one-page questionnaire for IT savvy self-assessment.

Obviously, this research briefing has many more interesting points to know and understand. But right now I am going to stop here because I am picking up only those points that are apparently useful for my work. On top of that, the departure time of my flight is coming nearer. -:) Anyway, if you wish to read the entire research briefing, then you can find it from the web site of MIT CISR.

The Art of Standards Wars

Today I enjoyed reading the article, titled "The Art of Standards Wars". This article was published in Winter 1999 issue of California Management Review. Unlike the famous book titled "The Art of War", this article is quite readable! It contains very pertinent advice to the technology companies, which are involved in the standards wars. It talks about strategies and tactics with quite a few examples from field.

The article begins with a discussion of the historic examples: North vs South in railroad gauges, Edison vs Westinghouse in electric power and RCA vs CBS in color television. Besides telling the stories, this section also draws the learnings from these examples. Then the authors go on describing the types of standards wars. They have identified three types: Rival Evolutions, Rival Revolutions and Revolution vs Evolution. The terms evolution and revolution refers to the backward compatibility (and lack of it, respectively) of new technologies.The authors have then identified seven key assets, ownership of which could indicate strength for waging in the standards war:

1. Control over an installed base of customers - can be used to block cooperative standard setting and also to block rivals from offering compatible products.
2. Intellectual Property Rights (IPR)
3. Ability to innovate
4. First-mover advantages
5. Manufacturing capabilities - cost advantage is important!
6. Strength in complements
7. Reputation and brand name

In next section, the authors have identified two crucial marketplace tactics: preemption and expectations management. There are multiple ways to preempt. One simple way is to be first to market. Secondly, you should aggressive early on to build an installed base of customers. Penetration pricing can be used to build such installed base of customers. For expectations management, vaporware is a classic way: announcing an upcoming product so as to freeze rival's sales. But perhaps the most direct way to manage expectations is by assembling allies and by making grand claims about product's current and future popularity.

Finally, the authors have given advice to both winners and losers. The advice for winners is as follows:

1. Stay on guards and let not rigidity due to early move constrain you for brining in improvements.
2. Offer customers a migration path so that newer versions of products can be brought out without worrying about supporting the older versions.
3. Commoditize complementary products so as to maintain a competitive market.
4. Competing against your own installed base
   
5. Protecting your position by offering ongoing attractive terms to important complementers and by taking steps to avoid being held up by others who claim that your product infringes their patents or copyrights.
   
6. Leveraging your installed base by carefully expanding in adjacent space and/or by expanding geographically.
   
7. Staying a leader by means such as developing proprietary extensions to otherwise open standards and by allowing complementers and even rivals to participating in developing standards under your terms (Thinking of Sun's JSRs!)

The advice for losers for recovery is as follows:

1. Add an adapter or somehow interconnect with a larger network.
2. Resist from offering survival pricing as it signal weakness.
   
3. If all else fails, sue!

Although written for technology companies engaged in standards wars, this article is a good read for anybody interested in knowing how standards get established and in knowing the political side of standards-setting.

Business agility explored

While discussing SOA adoption, we believe that SOA is needed for achieving business agility. However, at the same time, we find our understanding of business agility is limited. We understand that business agility means the ability of business to respond quickly to the ever changing needs of environment in which it operates. It also means how quickly the business can launch new products, enter new markets or respond to new regulations. However, beyond this understanding of business agility, we stop to explore.

An article from the Research Briefing 2006 of MIT Sloan CISR would perhaps help us in understanding more about business agility. In this article, authors Jeanne W Ross and Cynthia M Beatch, have defined agility as the set of possible business initiatives a firm can readily implement leveraging pre-determined competencies with managed cost and risk. Based on their research, the authors have identified seven types of business agility, which they have grouped into three categories. These categories and the types are as given below:

• Business Efficiency: Continuous improvement and Scalability
• Market Responsiveness: Product innovation, Process re-engineering and New business model
• Boundary Spanning: Acquisitions and Partnerships

Business Efficiency agility attempts to identify repetitive processes and extract unnecessary cost and time. The continuous improvement agility is more found with commodity businesses such as consumer product manufacturers. Such organizations are required to implement continuous improvement initiatives for accelerating profitability while reducing business risks. Scalability agility is the ability to rapidly scale up and down in response to changing business volumes. This kind of agility is almost must for companies from the Property and Casualty (P&C) Insurance industry as they would experience extraordinary demand for claim processing after natural disasters. The key organizational characteristics that would help to achieve the Business Efficiency agility include the following:

• Standardized IT environment
• Standardized operations processes, systems and data
• Enterprise-wide process design
• Strong metrics and
  
• Shared services

The speed with which organizations are required to respond to new customer demands and competitive challenges have gained increased importance for market responsiveness agility. Unlike Business Efficiency agility, Market Responsiveness agility disrupts, builds and reuses core capabilities. Interestingly, even if processes must change, companies benefit from developing clearly defined, standard operations processes and related data. Standardized IT Environment also helps in providing the foundation for new processes and interactions. Most notably, matrixed management structure helps companies introducing new capabilities without discarding old capabilities.

Organizations with boundary spanning agility have competencies enabling profitable growth through their acquisitions and partnerships. The key organizational capabilities that enable Boundary Spanning agility include aligned incentives, strong metrics and individual heroics. Interestingly, the key organizational capability for other two categories of agility, the Standardized IT Environment is actually found to be negatively correlated with profitable acquisitions. On the other hand, while the heroic actions of individuals enable boundary spanning agility, it gets highly discouraged for achieving other two categories of agility.

While some organizational characteristics would help for more than one categories of agility, there would involve some trade-offs if an organization attempts to achieve agility in multiple categories.

This kind of understanding of business agility would definitely help in planning for SOA adoption. Let's hope to receive even more understanding about business agility from MIT CISR. We will then be more wise while discussing the need of SOA for achieving business agility.

MIT case study on Air Deccan

Today it was a pleasant surprise for me to see a case study on Air Deccan coming from MIT Sloan Center for Information Systems Research (CISR). Available as a working paper on the web site of CISR, this case study primarily focuses on how Information Technology (IT) has been playing an important role in the business of Air Deccan. Written by Jeffrey L Sampler in Nov 2006, it helps in understanding the big picture of aviation industry, the business model of Air Deccan and the role of IT at Air Deccan.

A simple methodology for making build vs buy decision

Today while I was on web site of Elastic Path Software, I happened to read one of their white papers titled, Build versus Buy in Four Easy Steps. Initially I thought this must be another way to say that buying Elastic Path E-commerce Platform is the best decision to make! Yes, the white paper does have a sales pitch but still it makes a good read due to the methodology that they have described for making build versus buy decision.

The four easy steps of this simple methodology are as follows:

1. Pick up three criteria, each for buy and build options from a compiled list of criteria.
2. Put them vertically and horizontally on a three-by-three matrix. Then write the most compelling option in each cell by comparing intersecting criteria. In a group, each one has to do this exercise independently.
3. Count the number of buy and build options and that could give a good indication of your base decision. For a group, an average of counts would be needed.
4. Check out whether this decision makes sense to you. If not, then perhaps you have missed an important criteria or you have got single overriding criteria. For a group, a third possibility exists of unspoken assumptions!

The white paper describes this methodology in detail with examples and provides worksheets too. Given my experience of participating in many discussions for buy versus build decision-making, I found this methodology quite simple and hence quite useful.